Dick´s Sporting Goods & Bank of Scotland rescue JJB Sports

Wednesday, 11 April 2012

Dick's Sporting Goods and Bank of Scotland are in conversations to rescue the troubled JJB Sports. The American retailer will invest an initial £20m into the British sportswear retailer, most of it in return for convertible notes.

"We believe that the investment package and strategic alliance with Dick's will provide a real opportunity to accelerate JJB's turnaround," JJB chief executive Keith Jones said earlier this week.  

Alongside with this initial injection of capital, JJB will benefit from a £10m investment from existing JJB shareholders, including America's richest man Bill Gates. In total, JJB Sports has received another £30 million capital injection, after posting a pre-tax loss of £103.5m for last year.

Dick's has the option to put in another £20m next year while other investors could contribute £5m, the ’Scotland Herald’ reported. If shareholders approve the deal, Dick's participates in both funding rounds and it converts its paper into shares, this could leave it with a 61% stake in JJB.

Meanwhile, Dick´s is already seeing the benefits of its decision: analyst Sam Poser of Sterne, Agee & Leach raised Dick's to "Buy" from "Neutral." In a client, note the analyst said that the company's current stock price of $49.06 is attractive if investors are willing to give it at least two years. Poser said that Dick's, which sells sporting goods and other items, has the opportunity to take a 58.5 percent stake in JJB Sports by March 2013. The analyst said this is good because unlike Dick's fast transactions with Galyans and Golf Galaxy, the JJB Sports deal will give Dick's time to learn about JJB's business and help create a smoother transition, reported AP.

In the same vein, David McCorquodale, Edinburgh-based corporate finance partner at accountant KPMG who was involved in the deal, highlighted that said: "Bringing in a strategic partner alongside a brand is a real statement for the industry. The brands need and want a successful JJB. For Dick's, this is the first move they have made out of the US."

Finally,Dick's chief executive and chairman Edward Stack summed up that "By partnering with JJB, we will be positioned to share our more than 60 years of operating experience in the United States while gaining insight into the specific needs of UK athletes, which will serve as a stepping stone for our company's future growth and development."